The era of large-scale hiring at Indian IT services firms is giving way to a more measured approach, as companies reduce staff through automating routine work while still struggling to hire AI specialists, despite a surge in client demand for AI.

“Top five Indian IT firms added only 17 net employees in the first nine months of FY26 versus 17,764 in the same period last year,” said Chirag Mehta, vice president and principal analyst at Constellation Research. “That is what AI-era productivity looks like in practice: more output per employee, fewer benches, and tighter utilization.

The supply of skilled talent is far below demand, according to Biswajeet Mahapatra, principal analyst at Forrester. “India has only one qualified engineer for every ten generative AI jobs, and firms report that only 15–20 percent of the workforce has AI-ready skills due to rapidly evolving technologies, high salary inflation, and limited advanced training and research capabilities,” Mahapatra said.

This shift was evident in the latest earnings for the October–December quarter for the top IT services firms. Even as AI dominated client conversations and deal pipelines, hiring across India’s top IT services remained muted.

Shrinking headcount

At the end of Q3 FY26, TCS reported a global headcount of 582,163, down by over 11,000 employees sequentially and sharply lower than its Q1 level of 613,069. Tech Mahindra also reported a decline, with headcount falling to 149,616 in Q3 from 152,714 in the previous quarter. HCLTech reported a marginal sequential dip of 0.1% to 226,379 employees.

Infosys appeared as an outlier, increasing headcount to 337,034 in Q3 from 331,991 in the previous quarter, adding nearly 5,000 software professionals. This, however, was still far lower than the employee growth the company registered in the previous quarter, indicating a struggle to attract the relevant talent akin to its peers.

AI is reducing the need for large teams

Traditionally, the Indian IT companies deployed large teams linked to cost efficiency and predictable delivery. However, with the adoption of AI and enterprises demanding faster delivery, fewer manual processes, and measurable outcomes, this model is being challenged and reworked.

“Leveraging AI and machine learning, companies are automating high-volume, routine tasks that earlier required large teams,” said Biswajit Maity, senior principal analyst at Gartner. “This is leading to smaller, more specialised teams and contracts increasingly structured around outcomes and key performance indicators.”

This trend is especially visible in software development. With AI and vibe coding, companies are able to push a lot more code into production with a fraction of the headcount, explained Jimit Arora, CEO at Everest Group.

“While the teams will not disappear, we do expect to see a reduction in the traditional way of working and getting more done with either the same or fewer resources,” Arora said. “If the traditional model was 80% human and 20% tech, the reinvention model is roughly 20-80 i.e., 20% human, and 80% tech, where we see the industry gravitating toward is 50-50, i.e., 50% human and 50% tech.”

Hiring gives way to reskilling, subcontracting

Earnings calls from top IT companies for the October–December quarter show that while clients are increasing AI adoption, IT services firms are no longer responding with large-scale hiring.

TCS said it continues to hire from campuses and laterally for roles aligned with future requirements. However, wherever the company was not finding success in re-deployment, it released the workforce. In Q3 alone, TCS fired approximately 1,800 people, the company acknowledged during the earnings call.

To compensate for the lack of talent availability, IT services firms are investing heavily in reskilling.

TCS now has more than 217,000 employees with advanced AI skills, a three-fold increase over last year. HLCTech is implementing GenAI and AI capabilities across its lines of business and scaling adoption with customer-specific AI tooling. To enable all this, over 38,000 additional employees have been trained on GenAI, and more than 600 on responsible AI, acknowledged C. Vijayakumar, CEO at HCLTech, during the earnings call.

Mehta noted there is also a knock-on effect where IT services companies are tilting toward subcontracting and gig-style capacity for variable demand, rather than keeping large permanent benches. That can reduce visible headcount growth even when delivery volume rises.